Nickel could retrace this fall in prices and bounceback towards Rs 970/1,000 zones in the near term
SSJ Finance & Securities
From the weekly chart of nickel, we can garner that prices have been on an uptrend since June 2017, rallying from around Rs 570 per kg to Rs 1,090/kg in April. After April, prices have corrected to Rs 910/kg.
Prices have been forming higher high and higher lows, which is a bullish sign. The same can be seen from the up arrows on the chart. The upward sloping trend line (T1) stands around Rs 870/kg, which could provide strong support to the market. Until this trend line is not broken, prices should remain in an uptrend.
The horizontal blue line currently placed at Rs 840/kg, which had been acting as a resistance in 2017, will now act as support. The 50-weeks simple moving average (SMA) at Rs 845/kg could provide support. The 50 percent Fibonacci level from the lows of June 2017 to the highs of April also stands around Rs 840/kg.
A slide in prices towards these levels could offer an opportunity to buy from a positional perspective. The relative strength index (RSI) is also trading around the 50 level mark which could limit any near term downside.
We have seen a sharp slide in the last few weeks from Rs 1,050/kg towards Rs 910/kg. We could see nickel retrace this fall in prices and bounceback towards Rs 970/1,000 zones in the near term.
Nickel prices fell off last week, but remains in a general long term uptrend. Commodity watchers should keep an eye on environmental measures in the Philippines. President Rodrigo Duterte of the Philippines announced a possible halt to mining in the country due to environmental damage. On June 23, 27 mines passed an environmental review, easing supply uncertainties. However, the same remains due to the environmental measures.
We continue to believe that the draw on visible exchange stock is over-running any actual deficit. But don't let the facts get in the way of a good rally. Speculators have driven nickel up 25 percent since December 2017, but we no longer see any fundamental response to necessitate a correction.
Nickel has been resistant to trade war tensions given its longer-term bullish electric vehicle (EV) narrative, but it is not immune. Prices are down 12 percent since the G7 meeting in June. The move in the cash-3M spread from $50 in April to nearly $100 in July is extreme.
On one hand, this supports traders looking to finance stockpiles, but amid a wobbly macro backdrop, it is now eating into returns of long positions.
The wide curve structure, along with flat premiums (Shanghai CIF has been around $150 and down from $300 at the beginning of the year), gives us conviction that nickel has been gaining on speculative flows rather than current physical trends. The key to remember is that EV currently account for only 0.5 percent of demand.
We are long-term bulls but suspect things will slow down for a while. The dollar came under pressure after President Donald Trump said he was 'not happy' about US interest rate hikes, while renewed trade-war tensions pressured other metal prices.
The dollar index, which measures the greenback against a trade-weighted basket of six major currencies, rose 0.09 percent to 95.16. The index traded as high as 95.65 prior to Trump's comments on Thursday.
While the weaker dollar also offered support to other metals, renewed fears of an escalation in the US-China trade war dominated direction as nickel fell to a low of Rs 907.3/kg, before paring some losses. It finally closed at Rs 923.3/kg. Nickel saw some recovery today towards Rs 930/kg.
Disclaimer: The author is AVP - Commodity Research, SSJ Finance & Securities. The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.